Is Delaware's Corporate Law Too Big to Fail?
19 Pages Posted: 11 Jun 2009 Last revised: 13 Jan 2015
Date Written: April 1, 2009
An enduring inquiry for American corporate law scholars is why the small state of Delaware dominates corporate chartering in the United States. Several theories explain the result. I add another partial explanation: size alone makes Delaware attractive to reincorporating firms by making the state’s corporate law more important to the American economy - and corporate interest groups - than that of other states. Any single state with a small number of incorporations could disrupt their firms’ corporate structures without inducing any repercussions in Washington. But Delaware - or really its corporate law - is “too big to fail.” Damaged players in other states would be unable to enlist Washington to reverse the result. Nor would the low volume players be wary of Washington’s attention and the possibility of it over-reacting if a major corporate issue reached its agenda. Delaware, though, as home to about half of the American corporate economy, could not seriously disrupt American business without repercussion.
JEL Classification: D21, G18, G28, G30, G38, K22, K42
Suggested Citation: Suggested Citation